CDO deals resurface but down 90 pct in Q1-report

NEW YORK, April 9

NEW YORK, April 9 Issuance of collateralized
debt obligations began to reemerge in March though totals for
the first quarter still ended down 90 percent from a year
earlier, according to a Morgan Stanley report on Wednesday.

CDOs are complex bonds that pool securities to boost yield
and in theory spread risk.

About $13.4 billion of CDOs were issued in March, up from
$3.3 billion in January and February, according to Morgan
Stanley data. The first quarter total of $16.7 billion was down
from $165 billion a year earlier.

CDO issuance seized up late last summer as subprime
mortgages used to create many of the securities plummeted in
value. The uptick in March stemmed partly from deals being
restructured or created to clear a backlog of debt that had
been warehoused for CDOs, according to Morgan Stanley.

All of the CDO issuance in March came from collateralized
loan obligations, either middle market or leveraged loan CLOs,
Morgan Stanley said. U.S. dollar-denominated transactions
accounted for 61 percent of issuance, with euro-denominated
transactions making up the rest.

CDOs had helped fuel the U.S. mortgage lending boom by
providing a source of demand for risky mortgages, which were
repackaged and sold to investors across the globe. As more of
the risky mortgages began to default last year, rating agencies
downgraded hundreds of billions of dollars of CDOs, forcing
some into technical default. For details see [ID:nN08339143].

In the first quarter, an unprecedented 4,561 rating actions
were taken on CDOs, of which 4,485 were downgrades, Morgan
Stanley said.